Last Updated: May 6, 2008: 5:51 AM EDT
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Fort Worth's natural gas rush

A giant natural gas field underneath this city of 686,000 is insulating it from recession and making it Texas's newest boomtown.

By Peter Elkind, editor-at-large

FT. WORTH (Fortune) -- "If you don't have a gas well, GET ONE!" implores the billboard on the interstate through Fort Worth, Texas. And in this amiable community (where, as it happens, I make my home), many neighborhoods are getting a gas well - whether they like it or not.

Welcome to Texas's newest boomtown, a city of 686,000 that just happens to sit on top of a giant natural gas field known as the Barnett Shale. With demand for natural gas rising (due in large part to demand from utilities) and the price spiking (it's doubled in the U.S. since last summer), exploration companies have kicked off a drilling frenzy in Fort Worth.

The upside is palpable around town. Once-struggling oilmen and big landowners are suddenly flush with gas money, while thousands of average homeowners are now collecting modest monthly royalty checks. According to an industry-funded study, an estimated 84,000 jobs have been created throughout the region by the drilling boom. "It's created a new wealth in our city," declares Fort Worth Mayor Mike Moncrief. "It's inoculated our economy. We find ourselves being an island in a sea of recession around us."

But the downside is palpable, too, especially in battles over the siting of almost a thousand (so far) natural gas wells - many of them incongruously close to parks, churches and homes. The incursion of large-scale drilling into the city's daily life has raised questions not only about environmental and safety risks, but also the eyesores, noise and truck-traffic that gas exploration generates.

The debate has prompted a modest backlash in this business-friendly town, evident in a sprinkling of red-and-white signs reading: "Just say NO to urban gas drilling." Don Young, a lifelong resident and neighborhood leader, warns that the drilling gold rush threatens to turn Fort Worth - often ranked as one of America's most "livable" cities - into "one giant industrial zone."

Mayor Moncrief, member of a legendary Texas drilling clan himself (one member of his family literally has "Oil" as his given middle name) dismisses that threat, citing city safety inspections and drilling restrictions. But he acknowledges that balancing the quality-of-living issues with the financial benefits can be "a delicate tightrope to walk. You have an industry that is used to drilling these wells in the country, where they don't bother anybody but a couple of cows and maybe a chicken."

To be sure, gas leases have generated huge windfalls for big landowners, such as Colonial Country Club (home of a PGA golf tournament), DFW Airport (which received a $185 million signing bonus for leasing its mineral rights to Chesapeake), and the city of Fort Worth itself, which plans to put half of nearly $1 billion in projected long-term gas proceeds into a special endowment for capital projects.

The thornier issue results from the ongoing push - led by Chesapeake Energy (CHK, Fortune 500) and XTO Energy (XTO, Fortune 500) - to drill in residential neighborhoods. Under city ordinance, gas companies can place drilling rigs and gas wells as close as 600 feet to existing homes (or 300 feet if granted a "high-impact" permit). But to burrow underneath homes in a given neighborhood, using horizontal-drilling technology, they must win gas leases from hundreds of individual landowners, who are offered a signing bonus (for an average lot, perhaps $1,000-2,000) and a slice of any resulting royalties - perhaps $50 a month.

This has prompted a high-profile battle for the hearts and minds of the little guy. Gas companies are buying playground equipment, building hike-and-bike trails, and making big donations to the United Way. Characteristically aggressive, Chesapeake has led a "communications outreach" campaign. (For more on Chesapeake Energy, its combative CEO Aubrey McClendon, and the company's remarkable rise to the top of the energy world, go to this feature.) Its billboards - featuring the vaguely Marxist slogan "Together, We All Win" - are everywhere. Recently, Chesapeake commissioned a 30-minute video "newsmagazine," portentously titled "Citizens of the Shale," and bought TV time to broadcast it on four local stations.

To date, many Fort Worth homeowners have voted with their pens, figuring that drilling is inevitable, and they might as well accept their tiny share of the windfall. "While others are hurting, we are superficially in this wonderful bubble, and we will ride out the Bush recession," says Lon Burnam, a Democratic state representative from Fort Worth. But Burnam worries about the consequences. "There may be irreparable harm that we're not going to understand for ten or fifteen years," he says. "If ever there was a mixed blessing, this is one."

In the meantime, local businesses are enjoying the benefits too. Cliff Johnson, owner of the Texas Motors Ford dealership, says business is up about a third from last year, during a quarter when Ford sales were down nationwide. "On any given day, someone is in here that's somehow involved in the Barnett Shale," says Johnson. "It's great for business. There's no recession in Fort Worth, and there's no recession at Texas Motors." Johnson has also received an extra benefit: He's leased the drilling rights for the 20 acres under his dealership property. Says Johnson: "It helps with the expansion of my body shop." If the natural-gas money keeps flowing, he'll surely need the extra capacity. To top of page

Meet Mr. Gas: Combative CEO Aubrey McClendon has built once-floundering Chesapeake Energy into the country's hottest natural-gas company.
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